Financial Accounting Notes

This adjusting entry serves two purposes: (1) it apportions the proper amount of insurance expense to November operations, and (2) it reduces the asset account to $550 so that the correct amount of unexpired insurance will appear in the balance sheet at November 30.

Office supplies:

On November 2, Roberts Real Estate Company purchased enough stationary and other office supplies to last for several months. The cost of the supplies was $720, and this amount was debited to an asset account by the following journal entry:

No entries were made during November to record the day-to-day usage of office supplies, but on November 30 the office manager estimated that supplies costing about $500 were still on hand. Thus, supplies costing about $220 were used during November. Therefore, an adjusting entry is made debiting an expense account $220 (the cost of supplies consumed during November) and reducing the asset account by $220. The adjusting entry is:

After this entry is posted, the asset account Office Supplies will have a balance of $500, representing the estimated cost of office supplies on hand at November 30. This office supplies account will appear in the balance sheet as an asset; the office supplies expense account will be shown in the income statement.

Depreciation expense: Building

The recording of depreciation expense at the end of an accounting period provides another example of an adjusting entry, which apportions a recorded cost. The journal entry for the adjusting entry is as follows:

Depreciation Expense: Building ……………………………………… 150
Accumulated Depreciation: Building ………………………… 150
To record depreciation for November.